BRIEF OUTLINE:
• What is franchising?
• Types of franchising
• Why franchise?
• Considerations for franchisor/franchisee
• Pitfalls/Be Careful
• Bangladesh Experience
WHAT IS FRANCHISING?
“A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers
or is obliged to maintain a continuing interest in the
business of the franchisee in such areas as know-how and
training; wherein the franchisee operates under a common
trade name, format and/or procedure owned or controlled
by the franchisor, and in which the franchisee has or will
make a substantial capital investment in his business from
his own resources.”
- Definition by International Franchise Association
WHAT IS FRANCHISING?
“Franchising is more than distributorship”
• Extends to an entire operation or method of business
• Greater assistance, control and longer duration
• Distributor merely re-sells products to retailers or
customers
TYPES OF FRANCHISE
3 main types of franchise:
• Product distribution franchise;
• Business format franchise and
• Management franchise.
PRODUCT DISTRIBUTION FRANCHISES
• A product distribution franchise model is very much
like a supplier-dealer relationship.
• Typically, the franchisee merely sells the
franchisor’s products. However, this type of
franchise will also include some form of integration
of the business activities.
BUSINESS FORMAT FRANCHISING
• In a business format franchise, the integration of the
business is more complete.
• The franchisee not only distributes the franchisor’s
products and services under the franchisor’s trade
mark, but also implements the franchisor’s format
and procedure of conducting the business.
MANAGEMENT FRANCHISE
• A form of service agreement.
• The franchisee provides the management expertise,
format and/or procedure for conducting the
business.
WHY FRANCHISE?
Franchises offer important pre-opening support:
• site selection
• design and construction
• financing (in some cases)
• training
• grand-opening program
WHY FRANCHISE?
Franchises offer on-going support
• training
• national and regional advertising
• operating procedures and operational assistance
• supervision and management support
• increased spending power, access to bulk
purchasing and economies of scale
FRANCHISOR–FRANCHISEE RELATIONSHIP
Regulated by contract which usually covers:
• Initial fee
• Royalty fee/Management fee
• Capital required from franchisee
• Territory/Area of operation
• Duration of license and renewal
• Termination
COMMON MISTAKES OF PROSPECTIVE FRANCHISEES:
• Not seeking sound legal and financial advice
• Not verifying oral representations of franchisor
• Not analysing the local market in advance
• Not analysing the competition
• Not making thorough due diligence of the franchisor
• Not choosing the right location
FRANCHISEES IN BANGLADESH
• Generally young and well educated
• 62% below 40 years old
• 37% had post-secondary education
• 32% own their own outlets
• 46% occupy the outlets as tenants
REASON FOR FRANCHISING
• 2/3 of franchisees felt that economies of scale in bulk
purchasing encouraged them to consider franchising
• People are more interested in some popular brands
than others.
• Easy to earn more money.
CONCLUSION
• Franchising – a great model for SMEs
• Proven formula for success
• Due diligence
• Central role of IPRs
• Avoidance of dispute
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